Risk Transfer mechanisms. Dr Pavan Kumar Singh Senior Research Officer National Disaster Management Authority Govt of India

Transcription

1 Risk Transfer mechanisms Dr Pavan Kumar Singh Senior Research Officer National Disaster Management Authority Govt of India

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3 Loss Events 2015 Total economic losses caused by the disasters in 2015 were USD 92 billion. Asia was hardest hit. The earthquake in Nepal was the biggest disaster of the year in economic-loss terms, estimated at USD 6 billion, including damage reported in India, China and Bangladesh. (Swiss Re)

4 Fatalities in Asia Of the US$ 175bn in overall losses, 27% came from geophysical events. Almost 60% of the fatalities in natural catastrophes were in Asia. Source: Munich RE The countries mainly affected were China, India and Pakistan, where protracted rainfall led to extensive flooding that ultimately claimed the lives of almost 2,400 people.

5 Losses in ASIA Asia suffered greatly from natural disasters in % of all losses worldwide. The year s two costliest events the earthquake in Japan with losses of US$ 31bn and the floods in China with losses of US$ 20bn were among the 11 events in Asia that exceeded the US$ 1bn mark. Overall losses from a total of 320 events came to US$ 87bn, with insured losses at only US$ 10bn, accounting for 20% of all insured losses worldwide. Source: Munich RE Losses in Asia totalling US$ 77bn were uninsured.

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7 Losses due to disasters British risk assessors Maplecroft conducted a survey Natural Hazards Risk Atlas India along with China is placed as top five countries (Japan, USA, Taiwan, China, and India) as "high risk" in absolute economic exposure due to natural hazards. According to the World Bank: i. Direct losses from natural disasters have been estimated to amount up to 2 per cent of India s GDP and up to 12 per cent of central government revenues. This amounts to nearly Rs 25,000 Crore.

8 The Economic Impacts of Natural Disasters on Developing Countries Economic Direct : loss of capital stock Indirect: e.g. business interruption Disaster Impacts Humanitarian Macroeconomic e.g. loss of GDP Ecological 8 8

9 Alternative Risk Transfer (ART) CAT Bonds Weather Derivatives Micro-insurance Mechanisms Inter-governmental Risk Pool (IRPs) -- With the opening of insurance industry to foreign collaborations and investment, it is feasible to develop the ARTs

10 Sustainable Access to Micro-Finance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care and empowering people to make the choices that best serve their needs. Kofi Annan, Ex Secretary General, UN

11 Factors which Encourage Disaster Insurance A Comprehensive disaster database at national and state levels. Disaggregated information on risk exposure at the level of households and communities. Investment in development of new insurance services and products. Setting up monitoring mechanisms. Regulation of intermediaries which deliver insurance Services.

12 Public-Funded Insurance Programmes: Limitations Be it Public-funded Insurance Schemes; Publicfunded/Managed Insurance; National Flood Insurance Programme; Parametric Catastrophic Funds; Specific Insurance Pools, World over, following issues have been observed: Lack of targeting Not always linked to mitigation All the funds face resource constraints Lack of appropriate expertise Therefore any ART mechanism needs to address theses limitations.

13 Disaster financing in india

14 Institutional Mechanism India having a Federal Structure of Governance. Disaster Management responsibility rests with State Governments. Central Government supplements the efforts of State Governments. 14

15 Disaster Management in India 1. Until 2001 Responsibility with Agriculture Ministry. 2. Responsibility Transferred to MHA in June NDMA constituted with Executive Order in May DM Act passed in December

16 Disaster Management Act 2005 From a response and relief-centric approach to a holistic approach. The Act provides for: Establishment of legal and institutional framework at all three levels i.e. National, State and District. Formulation of policy and plan backed by statutory and financial support at all three levels. Mainstreaming of multi-sectoral DM concerns into the developmental process and mitigation measures. 16

17 Disaster Management Act 2005 contd. All States/UTs, Ministries/ Departments are required to: take necessary measures for prevention of disasters, mitigation, preparedness and capacity building; Integrate the measures for prevention or mitigation of disasters into their development plans and projects; Prepare Disaster Management Plan and update annually; Allocate funds for undertaking the activities under its DM Plan. 17

18 Disaster Risk Financing Largely guided by the recommendations of successive Finance Commissions. They have not made any specific recommendation regarding public-funded Insurance. Ninth Finance Commission was asked to study the feasibility of National Insurance Fund. Successive FCs including the 14 th have deliberated upon providing an adequate alternative to government funding for disaster relief.

19 Disaster Risk Financing National Disaster Response Fund generated through the levy of cess on selected items. State Disaster Response Fund Size of the corpus for each State determined by Finance Commission. Allocation for Rs. 61,219 crore. Flexi Funds available with Central Ministries/ Departments. Post disaster reconstruction be undertaken out of Plan Funds. Funds under Corporate Social Responsibility and MP Local Area Development Schemes. Despite all these, there is a huge gap between the allocation and the requirement. 19

20 National Disaster Management Plan Hon ble Prime Minister Shri Narendra Modi released the National Disaster Management Plan (NDMP) on Excellent National initiative based on Sendai Priorities. 20

21 Lay Out of NDMP Priorities for action under Sendai framework: Understanding disaster risk. Strengthening disaster risk governance to manage disaster risk. Investing in disaster risk reduction for resilience. Enhancing disaster preparedness for effective response and to Build Back Better.

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30 AGRICULTURAL INSURANCE Pradhan Mantri Fasal Bima Yojana (PMFBY) The Scheme replaced the existing crop insurance schemes both MNAIS and NAIS. PMFBY will increase the insurance coverage to 50 per cent of the total crop area of million hectare from the existing level of about per cent crop area. Actuarial premium based scheme with provision for upfront premium subsidy to be released to insurance companies The farmer share of premium- One Season One Rate Kharif 2% Rabi 1.5% ACH 5% The gap between the actuarial premiums and the rates payable by farmers would be fully met by the government. There is no upward limit on government subsidy.

31 AGRICULTURAL INSURANCE Pradhan Mantri Fasal Bima Yojana (PMFBY) Challenges to PMFBY Recently there has been considerable volatility in farm output due to the vagaries of nature. This has in turn led to financial distress of farmers. At times non-availability of accurate weather data. However the government is spending more than Rs 16,000 crores on the PMFBY, with a view to de-risk agriculture from the vagaries of nature and reduce vulnerability of small and marginal farmers.

32 Livestock Insurance Scheme The Livestock Insurance Scheme, a centrally sponsored scheme, which was implemented on a pilot basis during and of the 10th Five Year Plan and of the 11th Five Year Plan in 100 selected districts. Department of Animal Husbandry, Dairying & Fisheries is implementing this Centrally Sponsored Scheme. Under this Scheme, Chief Executive Officer is empowered to decide upon the Insurance company(s) and the terms and conditions. While selecting Insurance Company, besides premium rates offered, their capacity to provide services, terms and conditions and service efficiency are also taken in to account. The Livestock Insurance Scheme has been formulated with the twin objective of providing protection mechanism to the farmers and cattle rearers against any eventual loss of their animals due to death and to popularize it with the ultimate goal of attaining qualitative improvement in livestock and their products.

33 Livestock Insurance Scheme The scheme is being implemented on a regular basis from in 100 newly selected districts of the country. Under the scheme, the crossbred and high yielding cattle and buffaloes are being insured at their current market price. The premium of the insurance is subsidized to the tune of 50%. The entire cost of the subsidy is being borne by the Central Government. The benefit of subsidy is being provided to a maximum of 2 animals per beneficiary for a policy of maximum of three years. The scheme is proposed to be extended to 100 old districts covered during pilot period and more species of livestock including indigenous cattle, yak & mithun.

34 Micro Finance in India Micro Finance is a process than a product. It is a social dynamics which educates the poor, make them conscious of their needs and rights, help them to assert, and cooperate among themselves to develop leadership and ownership which is of the poor, by the poor and for the poor. Micro finance institutions encourages the poor for micro savings which can be used in the time of need and also can be used as a collateral for credit purposes when needed. Micro Finance spans not only towards micro savings and micro credit but also offers micro insurance as a package. Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana is akin to micro finance package concept though it is not covered under micro finance institution as the same relates to structured and institulionzied financing mechanism.

35 Mainstreaming of Disaster Risk Reduction (DRR) Mainstreaming of DRR has 2 prime components : A. Financial provisions like Flexi Funds Regards flexi funds, as per Min. of Finance OM No. 55(5)/PF- II/2011 dated , the flexi funds available in each CSS has been raised from the current level of 10% to 25% for States & 30% for UTs of the overall annual allocation under each scheme. Further stated that the same instruction will be applicable for Centrally Sponsored Schemes (CSS) except those emanated by legislation (e.g. MGNREGA) or for Schemes where the whole or substantial proportion of the budgetary allocation is fixable (eg. Rashtria Krishi Vikas Yojna).

36 Mainstreaming of Disaster Risk Reduction (DRR) The flexi-fund component within the CSS can be used to achieve the following objectives : To provide flexibility to States to meet local needs & requirements within the overall objective of any given Scheme at the sub-head level. To improve efficiency within the overall objective of any given Scheme at the sub-head level. To undertake mitigation/restoration activities in case of natural calamities, or to satisfy local requirements in areas affected by internal security disturbances. B. Policy initiatives through guidelines and capacity building of the stakeholders Railways and Petroleum. State of Nagaland has entered into an MoU with KfW for two perils Earthquake and flash floods.

37 Recently a Round Table on Disaster Resilient Infrastructure was held in New Delhi. Participants included representatives from: United Nations Office for Disaster Risk Reduction, Asian Development Bank, Asian Infrastructure Investment Bank, New Development Bank World Bank, Private sector infrastructure lenders, Infrastructure developers, Insurance companies, and Government of India (GoI).

38 Round Table discussed the following four areas for collaboration: Assessing Disaster Risk: To assess disaster risk, systems that capture and update comprehensive data on infrastructure and disasters need to be established. Standards of design and implementation; good risk management practices in infrastructure projects: Standards, codes and management practices have to keep pace with the state-of-the-art engineering technologies. Financing new infrastructure and mechanisms for covering risks: Some risks, especially that emanates from low-frequency, high impact events, has to be covered through mechanisms that diversify this risk. Mechanisms for supporting recovery in infrastructure sectors after disasters: Predictable and reliable public finance mechanisms that support infrastructure recovery need to be in place.

39 Discussion Paper Recommendations Risk insurance to be encouraged for private property. Provision of incentives by way of subsiding risk cover, tax deduction benefits or lowering interest rates on loan repayment for purchase of such insurance cover as mentioned above. Insurance industry may design/innovate/develop suitable insurance solutions and affordable simple insurance products at affordable premium rates. Risk insurance should be opted for long term relief support and reconstruction and not short term relief.

40 issues Should the insurance be made a pre condition by financial institutions for loan to Individuals? Should it be addressing each disaster separately or group of disasters? Should the exercise begin with low frequency high impact disaster (e.g. earthquake) or high frequency, low impact disasters (e.g. floods).

41 Way Forward As, Indian mountain states are exposed to severe hazards - flash floods, earthquakes and landslides. NDMA will be conducting a Workshop shortly, for awareness generation and possible identification of an effective risk carrier. Preparation of Disaster database at national level. Issue of Risk Transfer mechanism needs to be included in the Statute.

42 Thank You! 42